Bruce Lucas, the Company's Chairman and CEO, said, "Heritage achieved several important milestones in the second quarter. Our underwriting and exposure management program saved the Company nearly $20.0 million on our annual catastrophe reinsurance spend. We have continued to take underwriting actions this quarter to strengthen the quality of our Florida book of business. For example, we have implemented rate increases in the geographic areas exposed to Assignment of Benefit practices, and we continue to apply insurance scoring metrics to attract high-quality business. While Tri-County continues to lead Florida in assignment of benefits and other abusive claims practices, which drives increases in property insurance costs for Florida consumers, we are optimistic the Florida OIR will approve form changes aimed at addressing this epidemic in the near term. The Company continued its multi-state expansion and wrote its first policy in Alabama."

Results of Operations

The following table summarizes our results of operations for the three and six months ended June 30, 2017 and 2016 (in thousands, except percentages and per share amounts):

Three Months Ended June 30,

Six Months Ended June 30,

2017

2016

Change

2017

2016

Change

Revenue

Gross premiums written

$

159,255

$

177,295

(10)

%

$

301,490

$

324,561

(7)

%

Gross premiums earned

$

152,354

$

163,637

(7)

%

$

306,962

$

315,580

(3)

%

Ceded premiums

$

(61,902)

$

(54,719)

13

%

$

(124,334)

$

(100,320)

24

%

Net premiums earned

$

90,452

$

108,918

(17)

%

$

182,628

$

215,260

(15)

%

Total operating revenue

$

96,938

$

115,281

(16)

%

$

196,231

$

226,846

(13)

%

Operating income

$

13,062

$

29,757

(56)

%

$

24,952

$

41,797

(40)

%

Income before taxes

$

10,831

$

29,757

(64)

%

$

20,540

$

41,797

(51)

%

Net income

$

6,642

$

18,368

(64)

%

$

12,625

$

25,791

(51)

%

Per Share Data:

Book value per share

$

12.97

$

12.71

2.1

%

$

12.97

$

12.71

2.1

%

Earnings per diluted share

$

0.23

$

0.62

(63)

%

$

0.44

$

0.86

(49)

%

Return on average equity

7.3

%

20.2

%

(12.9)

pts

7.0

%

14.2

%

(7.2)

pts

Ratios to gross premiums earned:

Ceded premium ratio

40.6

%

33.5

%

7.1

pts

40.5

%

31.8

%

8.7

pts

Loss ratio

30.2

%

29.8

%

0.4

pts

30.2

%

36.7

%

(6.5)

pts

Operating expense ratio

24.9

%

22.4

%

2.5

pts

25.6

%

22.0

%

3.6

pts

Combined ratio

95.7

%

85.7

%

10.0

pts

96.3

%

90.5

%

5.8

pts

Ratios to net premiums earned:

Loss ratio

50.9

%

44.8

%

6.1

pts

50.8

%

53.8

%

(3.0)

pts

Operating expense ratio

41.8

%

33.7

%

8.1

pts

43.0

%

32.2

%

10.8

pts

Combined ratio

92.7

%

78.5

%

14.2

pts

93.8

%

86.0

%

7.8

pts

Quarterly Financial Results

Net income for the second quarter of 2017 was $6.6 million compared to $18.4 million for the second quarter of 2016. The decrease in net income is largely due to a decrease in gross premiums earned, coupled with an increase in the combined ratio. Additionally, the second quarter of 2017 included interest and amortization expense of $2.2 million on the Secured Notes that we issued in December 2016.

Gross premiums earned were $152.4 million for the second quarter of 2017 compared to $163.6 million for the second quarter of 2016. This decrease was driven by underwriting and exposure management aimed at improving underwriting results, including not participating in the assumption of Citizens policies since the first quarter of 2016 and discontinuing writng new business in the Tri-County area. Second quarter 2016 gross earned premiums benefited by $16.0 million from Citizins take-outs.

Ceded premiums as a percentage of gross premiums earned were 40.6% for the second quarter of 2017 compared to 33.5% for the second quarter of 2016. Citizens take-outs provided a 3.3 percentage point benefit to the second quarter 2016 ratio. The reduction in gross earned premium in the second quarter of 2017, and a reinstatement premium related to a large loss, increased the ratio by approximately 2.5 percentage points. On June 1, 2017, we placed our 2017-2018 catastrophe resinsurance program, at an estimated cost of $225.0 million.

The loss ratio as measured against gross premiums earned was fairly consistent for the second quarters of 2017 and 2016 at 30.2% and 29.8%, respectively. The non-catastrophe loss ratio improved 1.4 points to 28.4% in Q2 2017 as compared to Q2 2016.

The Company's operating expense ratio on a gross basis was 24.9% for the second quarter of 2017 compared to 22.4% for the second quarter of 2016. The second quarter of 2016 expense ratio benefited from the Citizens assumption activity by approximately 1.4 percentage points, due to the lack of acquisition expenses associated with the assumptions.

Heritage's combined ratio on a gross basis was 95.7% for the second quarter of 2017 compared to 85.7% for the second quarter of 2016. The combined ratio increased due to the increases in the ceded premium ratio, loss ratio and the gross operating expense ratio, as described above.

Book Value Analysis

Book value per share increased by 4.5% from $12.41 at December 31, 2016 to $12.97 at June 30, 2017. The increase in the Company's book value reflects the repurchase of 684,022 shares of common stock in the first six months of 2017 pursuant to the Company's repurchase program, coupled with a reduction in unrealized losses on the investment portfolio in the second quarter due to improved pricing on the fixed income portfolio.

Treasury stock, at cost, (2,443,352) shares at June 30, 2017 and (1,759,330) shares at December 31, 2016

(34,169)

(25,562)

Retained earnings

191,867

182,809

Total Stockholders' Equity

365,267

357,959

Total Liabilities and Stockholders' Equity

$ 1,148,635

$ 1,033,244

About Heritage

Heritage Insurance Holdings, Inc. is a property and casualty insurance holding company headquartered in Clearwater, Florida. Its subsidiaries, Heritage Property & Casualty Insurance Company and Zephyr Insurance Company, write personal and commercial residential premium through a large network of experienced agents in Florida, Hawaii, North Carolina, South Carolina, Georgia and Alabama. Heritage Insurance Holdings, Inc. is led by a seasoned senior management team with an average of 30 years of insurance industry experience.

Forward-Looking Statements

Statements in this press release that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "would," "estimate," "or "continue" or the other negative variations thereof or comparable terminology are intended to identify forward-looking statements. The risks and uncertainties that could cause our actual results to differ from those expressed or implied herein include, without limitation: the success of the Company's marketing initiatives; inflation and other changes in economic conditions (including changes in interest rates and financial markets); the impact of new federal and state regulations that affect the property and casualty insurance market; the costs of reinsurance and the collectability of reinsurance; assessments charged by various governmental agencies; pricing competition and other initiatives by competitors; our ability to obtain regulatory approval for requested rate changes, and the timing thereof; legislative and regulatory developments; the outcome of litigation pending against us, including the terms of any settlements; risks related to the nature of our business; dependence on investment income and the composition of our investment portfolio; the adequacy of our liability for losses and loss adjustment expense; our ability to build and maintain relationships with insurance agents; claims experience; ratings by industry services; catastrophe losses; reliance on key personnel; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail); changes in loss trends; acts of war and terrorist activities; court decisions and trends in litigation; and other matters described from time to time by us in our filings with the Securities and Exchange Commission, including, but not limited to, the Company's Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission on March 15, 2017. The Company undertakes no obligations to update, change or revise any forward-looking statement, whether as a result of new information, additional or subsequent developments or otherwise.